Cutting corners is a fact of life. We vacuum around rather than under things, we paint beside a cupboard instead of behind it, we use full cream if we don't have skim and if we can, we print two sided. But if there is one area of our lives in which you shouldn't cut corners it is finalising your financial relationship following its breakdown and here is why:
There are benefits to formalising your financial relationship
- When the ownership of your residence is transferred to you or your estranged spouse, stamp duty is payable. If, however, the transfer is made pursuant to a Court Order under the Family Law Act there is no stamp duty payable.
- If a property is transferred which is not your primary residence or some other asset such as shares, CGT is payable. If, however, the transfer takes place pursuant to an Court Order under the Family Law Act CGT is not immediately payable (CGT rollover relief).
- In the Tax Determination1999/53, it was found that a transfer of an asset which took place before a Court Order under the Family law Act was made could not receive the CGT rollover relief that would have applied if the transfer had been effected after a Family Court Order was made.1
There are risks which will cost you a lot more than a corner if you fail to finalise your relationship
- "But, we were amicable, we reached an agreement, I paid them money".
If there are no formal Court Orders in place, irrespective of whether you reached an informal property settlement, have transferred property or paid money to your estranged spouse, they can still make an application to the Court for the adjustment of property.
- Under the Family Law Act, parties who were married and have subsequently obtained a Divorce have twelve (12) months from the date the Divorce becomes final to initiate property proceedings. For de facto couples, this is two (2) years from the date of separation.
It is myth that if you 'bide your time' that your estranged spouses' ability to pursue an adjustment of property will fall by the way side and that is because in certain circumstances2, the Court can grant one party leave to proceed out of time.
- The matrimonial asset pool is determined as at the date of any property settlement or Court Order and not at the date of separation. Whilst the Court will have regard to post-separation event and contributions, as a general rule, this means that all of the assets and liabilities in your possession and control will be taken into account when determining the nature and value of the matrimonial asset pool available to be distributed between you and your estranged spouse.
- Your interest in any asset includes your share of those assets owned jointly with another: An important consideration, if you have re-partnered. The intention of Court Orders under the Family Law Act is that they bring all financial matters between you and your estranged spouse to an end. However, if you do not have Court Orders, have not obtained a Divorce, or do not have appropriate Estate planning documents in place your estranged spouse can make a claim on your Estate in the event you pass away.
For all of these reasons, I say:
- Formalise, formalise, formalise!
- If you have reached an informal agreement, formalise this agreement by way of an Application for Consent Orders and Minute of Consent Orders.
- If you can't reach agreement, don't delay. Seek legal advice.
- Do not pre-empt the property settlement. Wait until you have formal Orders in place before transferring, exchanging or paying anything to your estranged spouse.
So like that cupboard that you decide to move and the wall you have to paint anyway, cutting corners in the short term only serves to create a bigger issue in the long term.
Resolution of a property settlement need not be difficult or complicated. Let us help you by calling Carroll & O'Dea.
1 Taxation Determination TD 1999/53
2 Section 44 of the Family Law Act 1975.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.